How to Calculate Coupon Yield

The coupon yield (or nominal yield, or the coupon rate) is simply the interest rate stated on a bond. For instance, a bond with a 6% coupon rate has a nominal yield of 6%. It is calculated by dividing the annual coupon payment (or interest) paid by the face value.

The formula for calculating coupon yield is as follows:

Nominal yield = Coupon payment / Face value
Or,
Nominal yield = Annual Interest Payment / Par Value

Example 1:
If you buy a bond for $5,000 and receive $100 in annual interest payments, then your coupon yield is: 100 / 5,000 = 2%.

Example 2:
A convertible bond has a par value of $1,000 and a current market price of $920. The coupon payment is $30 per annum. Calculate the coupon yield.
Solution:
Nominal yield = Coupon payment / Face value = 30 / 1,000 = 3%
Thus, a bond with a $1,000 par value that pays 3% interest pays $30 per year in 2 semi-annual payments of $15.

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